After a brief review of the existing incomplete information literature, the effect of incomplete information on investors' exptected utility, risky asset prices, and interest rates is described. It is demonstrated that increasing the quality of investors' information need not increase their expected utility and the prices of risky assets. The impact of other factors is discussed in detail. It is also demonstrated that financial markets in general do not aggregate information efficiently, a fact that can explain the equity premium puzzle.

Heterogenous beliefs are an important factor in pricing financial assets. This book shows the impact of heterogenous beliefs on investor's portfolio, consumption behavior and on equilibrium asset prices. Includes supplementary material: sn.pub/extras

Inhalt
1 Incomplete Information: An Overview.- 1.1 Introduction.- 1.2 Portfolio Choice.- 1.3 The Term Structure of Interest Rates.- 1.4 Equilibrium Asset Pricing.- 1.5 Conclusion and Outlook.- 2 The Impact of Incomplete Information on Utility, Prices, and Interest Rates.- 2.1 Introduction.- 2.2 The Model.- 2.3 Equilibrium.- 2.4 Logarithmic Utility.- 2.5 Power Utility.- 2.6 Information, Utility, Prices, and Interest Rates: A Synthesis.- 2.7 Time-Varying Parameters.- 2.8 Conclusion.- 3 Optimal Portfolio Choice Under Heterogeneous Beliefs.- 3.1 Introduction.- 3.2 The Model.- 3.3 The Deviant Agent's Problem.- 3.4 Optimal Portfolio Choice.- 3.5 An Example.- 3.6 Conclusion.- 4 Optimal Consumption Under Heterogeneous Beliefs.- 4.1 Introduction.- 4.2 The Cox-Huang Methodology.- 4.3 Heterogeneous Beliefs.- 4.4 An Example.- 4.5 Portfolios and Consumption: A Synthesis.- 4.6 Conclusion.- 5 Equilibrium Asset Pricing Under Heterogeneous Beliefs.- 5.1 Introduction.- 5.2 The Model.- 5.3 Equilibrium Consumption.- 5.4 Equilibrium Prices.- 5.5 Implied Risk Aversion.- 5.6 Conclusion.- 6 Costly Information, Imperfect Learning, and Information Aggregation.- 6.1 Introduction.- 6.2 The Model.- 6.3 Portfolio Choice under Costly Information.- 6.4 Equilibrium Asset Pricing.- 6.5 Information Aggregation and the Equity Premium.- 6.6 Conclusion.- 7 Summary and Conclusion.- C The Short Rate Under Heterogeneous Beliefs.- References.- List of Figures.- List of Tables.- List of Symbols.